When it comes to areas of strength for The Carlyle Group, one of them is in US real estate, the Washington, DC-based private equity firm said during its second-quarter earnings call last week.
Bill Conway, Carlyle’s co-chief executive, said that within the firm’s business segments of global market strategies, real assets and investment solutions, “we have pockets of greatness,” including US real estate, its collateralized loan obligations business and secondaries.
“In real estate, we expect a continued strong earnings contribution from our US real estate business,” he said. “We are working to put the negative legacy effects of our international real estate business behind us, and we are pursuing new real estate strategies.”
Co-chief executive David Rubenstein later added that the firm was nearing a final close of its latest opportunistic real estate fund, Carlyle Realty Partners VII, at its $4 billion hard cap. “That’s our core real estate product,” he said. “We’ve had opportunistic funds in Europe and in Asia. They have not been as big or as successful as the one in the US.”
Rubenstein said that the firm was restructuring its real estate team in Europe, having rehired a former Carlyle employee, Peter Stoll, to head up its property business in the region, building a team and raising capital for individual transactions. Carlyle also is examining whether it can strengthen its existing team in Asia.
“We do think real estate is important for us,” he said. The firm also has been exploring a core-plus strategy, which is “a slightly different business” from Carlyle’s opportunistic real estate platform, in that core-plus targets nine to 11 percent rates of return, as compared with net returns in the high teens for opportunistic. “That has turned out to be a very interesting part of the business and I think other firms who are in the opportunistic business are also going into the core-plus business.” He declined to elaborate on the firm’s plans for its core-plus strategy, and said only that it was an “attractive business.”
Conway then chimed in: “We talk about opportunistic and core-plus like men are from Mars and women are from Venus, just totally different. There isn’t that big of a gap.”
He said that Carlyle’s existing real estate team, particularly the asset management people, would be able to support both the opportunistic and core-plus side of the firm’s property business. Conway added that the person who has been tapped to lead its core-plus platform had been with Carlyle for about 20 years, but did not identify the person by name. “I’ve got a lot of confidence in him, working with Rob Stuckey, who’s run US real estate for more than a decade. So we have high hopes for that business.”
Ultimately, Carlyle intends to make a real estate a very significant part of the firm. “Generally, what we find is that through times of distress around the world, people like to put some money in real estate,” said Rubenstein. “So for a variety of reasons, we think it’s going to be a great growth business for a long time.”
Carlyle reported overall economic net income of $180 million during the second quarter, a significant drop from $814 million during the same year-ago period. Total assets under management were $192.8 billion as of June 30, down slightly from $202.7 billion during the second quarter of 2014.